(Bloomberg) — The Cleveland Federal Reserve Bank’s president said the central bank has not yet reached a point where it has sufficiently restrained interest rates, signaling she favors further tightening of U.S. monetary policy.
“At this point, based on the data I have so far, I can’t say I’m at a level where the fed funds rate might be the next move, given that inflation has been stubborn, could be an increase or decrease,” Loretta Mester said in response to a question at an event in Dublin on Tuesday.
Mester, who will not vote on monetary policy this year, did not explicitly support raising interest rates at the Fed’s June meeting 10-14 meeting, noting that officials will receive a flood of economic data ahead of their next meeting.
Investors expect the U.S. central bank to keep rates on hold next month, but start cutting borrowing costs later this year, according to pricing in futures contracts.
“We’re four weeks away from the June meeting. So I want to look at all the data, including the bank data,” Mester said.
Fed officials raised interest rates by 5 percentage points in a little over a year, the most aggressive tightening since 2023.
Policymakers raised interest rates by 25 basis points at a meeting earlier this month, taking their benchmark rate to a target range of 5% to 5%. 25% and said they may be preparing to pause the tightening cycle.
Divergences are emerging
While officials are in strong agreement on tightening policy so far, disagreements are starting to pause on whether rates are now high enough to support the Fed hike.
Mester’s comments were one of the most hawkish views policymakers have had since the May meeting, in line with her usual support for further tightening. Two Fed officials said on Monday they favored a pause in rate hikes, while a third policymaker said the central bank has more work to do to curb inflation.
“We probably have a lot more to do at the Fed,” Minneapolis Fed President Neil Kashkari said Monday during a moderate discussion in St. Paul, Minnesota. Do it, try to bring inflation back down”. “The labor market is still hot, we haven’t seen much slack in the labor market. So, that tells me we have a long way to go to get inflation back down,” He said.
But Chicago Fed President Ostan Goolsbee told CNBC on Monday that he opposed the policymakers’ proposed increase earlier this month out of concern that officials would not tighten too much. interest policy, although he ultimately voted for it.
“The impact is still significant out of the 14 basis points we did last year, yet to be realized. You add that credit conditions are tight. I think we Extra care should be taken,” he said.
Consumer price index data released last week showed that prices rose 4.9% year-on-year in April, the first time in two years that prices were below 5%. While the Fed targets a different measure of annual price changes — the personal consumption expenditures index — all indicators are running at more than double the pace of their 2% target.
Policymakers are assessing the economy to gauge how much recent stress in the banking sector, including a string of regional bank failures since March, is weighing on growth. Officials say tighter credit could affect how high they need to raise interest rates to curb inflation.
(Add comment paragraph from other policymakers in 10th.)
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